Let me be clear. Short sales and short sale processes vary from state to state. The following information in this series of articles will pertain to Arizona short sales specifically… This does not mean that you will not find similarities between what I am writing here regarding the process here and say Michigan short sales for example, but remember, real property law is enforced differently in different areas. So please understand that this information may need to be checked against the process of your state to ensure that you have the most accurate information.
This will be the first in a series of articles in which the Arizona short sale process will be explained. I will begin with the definition of short sales and in the future finalize the discussion by giving you each piece of the puzzle so that you have the most complete step by step understanding of the process.
A short sale is simply a real estate transaction in which the sales price offered by the buyer of a home is insufficient to cover the debt or loan incurred to purchase the home by the seller. In layman’s terms, the home will sell for less than the amount still owed the bank or lender.
Basically, a buyer would submit an offer to a seller for many thousands of dollars less than what would be required to pay off the loan, and through the process the bank would review the offer and make a decision to either accept the offer or not. So if your current home is valued at 300k, but your loan is 350k… Then a short sale may be considered.
In today’s economy, many people have lost jobs, been out of work, gone through a divorce, or have become unable to payback or afford their mortgage payments due to a variety of economic or lifestyle factors. In some cases people who find themselves under financial hardship may choose to enter a short sale in order to create a more stable financial situation.
With Arizona being hard hit in the real estate sector, I have found the Arizona short sale being used quite often as a way to decrease debt and get out from under the loan of a home which has lost nearly 50% of its value in many cases.
But why in the world would a greedy banker agree to accept less than the loan amount in such a transaction? Well, its not because he woke up generous that day… Its because it would be the lesser of two evils for the bank. If we examine the situation closely it is easy to see that it would offer a greater benefit to the bank to have someone else on the hook for the remaining debt.
From the bank’s perspective it may consider a short sale as the only option to recoup any monies owed on the loan. The process may look like this: First, the current homeowner cannot continue to pay the mortgage for whatever reason or hardship. Second, the lender may then move to work out a repayment plan. The repayment plan either fails or does not provide the relief it was expected to provide. Finally, the bank must begin the foreclosure process due to continued non payment.
At this point, the banker is left to decide how best to salvage the loan amount outstanding. Contrary to popular belief the bank does not want the property. Properties do not pay interest on bank loans, people pay interest on bank loans. So it would follow that the bank wants people who can pay interest on home loans or the bank wants the maximum amount of cash it can derive from a potential buyer. The bank makes money buy lending with interest attached. It either wants more cash to lend or more people who can pay interest.
That makes good business sense right? Most banks are large corporations or are owned by one. Which means their primary goal is to return as much profit as possible to their shareholders. This is exactly what you would do if you were in their position and does not make your banker a bad person. Like you, he is just a person in a bad situation who wants the best possible outcome.